Tax relief on rented property

silvercar

look again at my previous link:

http://www.hmrc.gov.uk/manuals/bimmanual/BIM45700.htm

see example 2, the guy is mortgaging his rental property in order to buy a property to live in overseas. this new property is for his personal use, not in anyway connected to his business. Kay sentence:
Although he has withdrawn capital from the business the interest on the mortgage loan is allowable in full because it is funding the transfer of the property to the business at its open market value at the time the business started.

clutton_2

you may well be right - the property business is immensely complex, tax-wise, and differences occur if one acts as a sole trader, or as a limited company, or as self-employed, or as a property trader. i have just changed my accountant, as my previous one was a joke - so i may well have been fed incorrect info in the past. i am always happy to learn from more experienced guys/gals.

prudryden

My accountant tells me that the mortgage on one of my rented flats can be offset against all rental income on that flat and the others. So, is he right? I hope so.

rsbright

In reply to prudryden's posting - If you have a repayment mortgage you will be paying part interest/part capital with each payment. I believe it's only the interest that can be set against your rent. .

silvercar

The purpose of the mortgage is important, not where it is secured. So if you take out a mortgage on your residential home to fund the purchase of a rental property then you should be able to claim the mortgage interest as an allowable expense.

Good accountants are worth their weight in gold, or at least their bills in tax allowances.
Even better if you married into a family of them!

Innys

Silvercar - this just doesn't make sense.

While I don't doubt what you say and the link you have included, it isn't logical, in my view. The example given on the link implies that a landlord can get tax relief on their own principal private residence. If that is true, the landlord is using their business to fund their purchase of their own property - which itself is exempt from CGT anyway.

This doesn't fit in with the abolition of MIRAS some time ago either.

I will check with the tax office themselves.

silvercar

Innys, think of it as you buying a business. You borrow money from the bank. The interest you pay on the loan to buy the business is an allowable expense. Now think of the renting situation, the business is the house, so you purchase it with money loaned from the bank, in this case the bank money is in the form of a mortgage, where it is secured is immaterial.

If I can mention another forum, where accountants specialising in the letting market frequent, you will find similar points discussed.

http://www.landlordzone.co.uk/forums/forumdisplay.php?f=7

dunstonh

There has been a few articles in the financial press over the last year suggesting that the treasury is looking at ways to deal with buy to lets differently from other businesses. Mainly as people are not declaring rental income etc and not running it as a business when they should.

I wouldnt be surprised if you start seeing various loopholes being closed at some point.

Innys

Silvercar - I'm not disputing that the interest on the mortgage for the rented property (or properties) is allowable. The fact is, the only reason the mortgage was taken out was to fund the rented property and, therefore, it makes sense that the costs should be deducted from the rental income.

However, why should the interest on a mortgage which has nothing to do with the rental income be an allowable expense? Taking it to the extreme, why should a landlord not borrow against their rented property and use those funds to but a holiday, car, speedboat, private jet or whatever? Just think of the scope for abuse!

I would, therefore, disagree with your point that what the loan is secured on is immaterial.

silvercar

Innys wrote:

However, why should the interest on a mortgage which has nothing to do with the rental income be an allowable expense? Taking it to the extreme, why should a landlord not borrow against their rented property and use those funds to but a holiday, car, speedboat, private jet or whatever?

I wish, don't think my BTL could fund a private jet!

The landlord is taking his (or her) money out of the business, so that the business is funding itself. ie the money the landlord lent his business is being returned so the business is funding itself. The money loaned from the landlord is returned for the landlord to do what he likes with.

If I lend you money, when you return it I can spend it on what I like!